June 2020 AIM Prospector

Page 1

Issue 18 June 2020

Fast growing financial Recent IPO winning fans

FIVE firms featured

manufacturing recovery play

successful City advisor

exciting new energy firm

expensive leisure provider


Welcome back to the pages of AIMprospector, the online magazine dedicated to AIM-quoted companies. Five companies feature this edition. FX broker Argentex this month’s TopPick. The purpose of AIMprospector is to introduce investors to AIM companies, their business model, management, history and prospects. I want to provide a springboard for further research and a familiarity such that when news or market conditions change, investors can expediently undertake further research and take a trading decision.

Contents Walker Greenbank...........2 TopPick: Argentex........... 3 Invinity Energy Systems .... 5 Numis Corporation......... 6 Everyman Media..............7

A monthly tip sheet from would be a mug's game. Stock markets move quickly but AIM is frequently more fevered still. Take Invinity Energy Systems. I first became aware of the company at the end of April and spoke with the company on May 6th. Since then the shares have more than doubled! If publication in AIMprospector was dependent on an expectation of short term reappraisal I'd be tearing up work throughout the month in response to price changes. Two companies stand out in this edition: Walker Greenbank and Everyman Media. I had no idea how far shares in Walker Greenbank had fallen, nor just how little they had participated in the market recovery. Everyman Media is the opposite. While the shares have fallen, that decline, in my opinion, does not recognise the risks to the business and the large share price rise has already occurred. Remember to check the AIMprospector website www.aimprospector.co.uk for more AIM investing content. Thank you for supporting this publication. To contact Blackthorn Focus, publisher of AIMprospector, get in touch using the form at blackthornfocus.com/contact "Enjoy this month's AIM Prospector and good luck with your AIM endeavours" David O'Hara, Editor, prospector



twitter: @aimprospector email: editor@aimprospector.co.uk www.aimprospector.co.uk

Published by:

Blackthorn Focus Limited www.blackthornfocus.com



Fabrics firm is potential pandemic multibagger Shares in fabric business Walker Greenbank have fallen heavily on the COVID-19 scare.

Walker Greenbank 'is an international luxury interior furnishings company that designs, manufactures and markets wallpapers and fabrics together with a wide range of ancillary interior products'. The company operates seven brands, categorised between Style Library and Other Brands, which is home to the newer names. The company's most celebrated brands are Sanderson and Morris & Co. The first is a fabrics, wallpapers and paints business dating back to 1860. Sanderson has held a Royal Warrant since 1923. Morris

high margin revenues & Co is the incorporation of the designs of celebrated Arts and Crafts movement leader William Morris. Licensing of the Morris & Co designs earns Walker Greenbank significant high margin revenues. Sanderson and Morris & Co were acquired from the Receiver in 2003 for a bargain price of £5.5m. Walker Greenbank also provides outsourced manufacture, satisfied via its Standfast & Barracks and Anstey operations.


Some caution is needed before analysing past group profitability. A flood at the company's Lancaster site in late 2015 undermined the result for 2016 and 2017. The 2018 result was then flattered by the receipt of insurance monies. The year to January 2019 saw Walker Greenbank report revenues of £113m, with underlying profit before tax coming in at £9.5m. Net funds were £0.4m, versus a £5.3m debt at the previous year end. A total of 3.24p of dividends was declared for the year. This was followed in October

Greenbank confirmed that its two UK manufacturing sites were closed in response to the pandemic. While warehousing and online distribution continued, management warned on the outlook and

no dividend for 2020

announced that there would be no dividend for 2020. Demand for Walker Greenbank's products has not neen destroyed forever by COVID-19. Sales are sure to show some recover over the medium term and the ability to license Morris & Co alone is results were expected inline worth more than the entire market cap of many AIM2019 with results for the first six quoted companies. months showing revenues The market appears yet to unchanged at £56m and a recognise the recovery potential statutory pre-tax profit of £3.5m. at Walker Greenbank. The interim dividend was cut from 4.35p to 3.7p. In mid-February this year, Walker Greenbank (LON:WGB) Walker Greenbank reported that FOR results were expected in-line immense heritage and brands with Board expectations. beaten down valuation Readers were told to expect sales for the year of £111m. While AGAINST historical performance mixed net funds of £1.0m were tough sector reported, the trading environment was described as £26.8m Market cap 'generally difficult, particularly in 37p:40p Bid:offer the UK'. 3.4 P/E (historic) (forecast) Then along came COVID-19. Yield (historic) 8.6% (forecast) On March 25th, Walker 35p:90p 52week low:high



FX firm thrives as customers say bye-bye to big banks Forex service provider Argentex joined AIM in June 2019.

Investors backing the IPO have since done well, with the shares significantly ahead of the 106p offer price. Argentex works with corporates and high net worth individuals, offering a range of financial exchange services. This might be a hedging strategy enabling a company to fix the sterling cost of e.g. a future dollar expense, or an FX service for someone with an earnings stream drawn from a collection of currencies. The company endeavours to act only for clients with a genuine business need i.e. not to facilitate currency speculation by client officers. Argentex does not offer 'margin sensible risk management trading, spread betting, CFDs or similar products and it does not speculate with its own funds as principal'. This is sensible risk management. It is easy to imagine how a rogue client could amass substantial currency losses without the underlying business activity to counter it. To grow its top line, Argentex is reliant on two key criteria: winning clients and client activity. The first is the responsibility of its own sales


and marketing activity. The second is out of its control:

Argentex has two CEOs subdued international trade will reduce volumes being put through Argentex' book and a lack of volatility in currency markets undermines demand for hedging strategies. Unusually but increasingly common, Argentex has two CEOs. The company is led by Harry Adams and Carl Jani. Both have substantial career FX experience and have worked together previously. Each, along with MD Andrew Egan, are coFounders of Argentex. The retained shareholding of this trio adds to 29.6% of the equity. Management cited the requirement for growth capital


as the reason to IPO the business. A Group plc was formed, which acquired Argentex LLP, the previous trading entity. The first set of results, issued in November for the six months ending September 2019 revealed a 16% increase in FX volumes at Argentex LLP and a huge 41% increase in revenues. 210 corporate clients joined in the period, giving a 16% increase in FX volumes total of 932 actively trading clients. General election uncertainty was good for the group, as clients acted to protect capital commitments against large currency swings. Argentex followed this with a trading statement at the beginning of April. Here, revenues within the regulated entity were ahead more than 30% and 450 new corporate clients were added for the year ending March 31st. The number of actively trading corporate

Argentex joined AIM in a ÂŁ120m IPO www.aimprospector.co.uk

AIMprospector clients was up 12%. The Group was also encouraged by take-up of FX options products. Argentex believes that there is a substantial addressable market that comprises companies too small for the established banks to value servicing with a competitive offer. The companies that it targets are those typically undertaking foreign exchange of between ÂŁ1m and ÂŁ500m over the course of the year. Argentex then acts as Riskless Principal, simultaneously entering into a contract with a counterparty bank to reduce its net currency exposure to nil. Argentex earns acts as Riskless Principal its revenue on the spread, the difference between the rates applied to the contract with its client and the contract with the banking counterparty. Argentex is thus in a much stronger bargaining position with its bank counterparties than its clients, acting individually, could ever hope to be. The catch is, that Argentex retains counterparty risk: the most significant of which is with its client. That risk was demonstrated succinctly by AIM-quoted rival Alpha FX. Here, a large move in an uncommon currency pair saw a client unable to post the required margin payments (meet running losses on the existing contract). This meant that Alpha FX' own cash became depleted. Shares in Alpha FX nearly halved and the company was forced into a capital raise. This shows the necessity for



Argentex will again be sponsoring a team at Polo in the Park in 2021 risk controls across an FX broker's book. While it is hard to argue against a business displaying such powerful momentum as Argentex, some aspects of its business model are unlikely to satisfy committed Buffettesque investors. First, the product is entirely homogenous. Currency certainty provided via a hedging agreement with Argentex bears no distinction to the experience with another competent provider. Although switching costs are real, as the entire onboarding and anti-money laundering processes must be switching costs are real satisfied for any provider, any perception that Argentex is doing too well in agreements could lead clients to shop around. My second concern is that the current boom in trading will increase staff costs and industry competition. There is some evidence that there are issues with client longevity as the growth in total numbers of clients appears to be outstripping the active trading client growth. I worry

that some clients may be naive in their own engagement with FX strategies and not have a 16% increase in FX volumes good experience e.g. having to add margin, or a wish with hinsight to have transacted at a different point, leading to them cease engaging Argentex. Argentex enjoys substantial investor confidence. This is a 'hot' area and the company believes that it has barely scratched the surface of its addressable market. The traditional bank FX offering is typically not the most competitive for SMEs. Argentex company looks set to continue its growth, despite COVID-19. Argentex Group (LON:AGFX) FOR strong business momentum simple business model

AGAINST low barriers to competition constant sales expense Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

ÂŁ170m 150p:154.5p 16.1 2.0% 90p:207p


Innovative battery firm leads charge with lithium alternative Invinity Energy Systems joined AIM in April this year following redT Energy's merger with US-based Avalon Battery. Invinity manufactures and supplies a rechargeable battery that is crucially differentiated from the plentiful lithium-ion (Li-ion) cell. Invinity's product is a vanadium redox flow battery (VRFB) with superior longevity and safety characteristics to Liion. Best known as a hardening agent popular in hand tool manufacture, vanadium is a transition metal capable of existing in four oxidation states. Using the metal in a rechargeable battery was first reducing fire risk hypothesised in the 1930s but not successfully demonstrated until 50 years later. What distinguishes Invinity's offer is the fact that the battery operates by circulating a liquid electrolyte, significantly reducing fire risk. A VRFB delivers superior performance to Li-ion, typically operating without degradation over five times as many charge/discharge cycles. The vast increase in private ownership of solar panels e.g. on factory rooves, has created a



market of economy driven energy consumers/producers. Invinity is successfully selling to this market and the frequency response services market. The requirement for a

increased prevalence of weather dependent power generation creates an immense

solution is battery cells

opportunity. Currently, a VRFB is more expensive than a Li-ion solution. However, a study by the US Department of Defense concluded that this gap would likely be closed by volume increases delivering economies of scale in production. Invinity's solution is able to operate for 25 years, while a typical Li-ion offering can fail in as few as three. Invinity Energy Systems shares represent an innovative solution in a nascent market that is supported by a powerful global trend. The company typifies AIM's raison d'ĂŞtre.

battery solution to frequency response was made clear to the UK in August 2019, when a gas fired power station in Oxford and an offshore wind farm both suffered power outages in short order. This took out the power across the UK. A typical power station is unable to immediately respond to such a requirement and similarly renewables may not be generating at a particular time. The only solution is battery cells. Invinity is already installing its VRFB solution with infrastructure providers for frequency response requirements. One such application is with a customer in California, that calls on VRFB discharge typically three times a day. Invinity will deploy at the Energy Superhub Oxford project here in the UK later in 2020. Invinity Energy Systems' solution can be applied where there is a drop in supply (discharge) or demand (charge) of electrical power. The

an immense opportunity

Invinity Energy Systems (LON:IES)

FOR zeitgeist market market enjoys structural growth

AGAINST few protections from competition unproven business ÂŁ70m

Market cap




P/E (forecast) Yield (forecast) 52week low:high

0 37p:92p



AIM blue chip steeped in success Numis Corporation has been quoted on AIM since 1996. The company earns its revenues as a stockbroker to fund managers and financier to companies. Numis operates at the heart of the UK's capital markets. It represents some of AIM (and the Main Market's) finest companies and is one of London's best regarded brokers. The plethora of companies rebuilding their balance sheets in the wake of coronavirus is leading investors to acknowledge the merit of quoted stockbrokers as investments. I expect the case for Numis shares to endure substantial net cash beyond this crisis. The company has a substantial net cash position and has been dividend paying in every year since 1998, with no cuts. Numis earns its revenues when fund managers trade shares or companies instruct Numis to raise money for them, in a placing or IPO. The model operated by Numis and other similar brokers is frequently understood to be one where commission charges earned by executing fund manager trades covers fixed costs. Profits are


then dependent on 'corporate' activity, i.e. fundraising. There is considerable evidence that Numis does this better than the competition. The company has been profitable in every year since 2009 and dividends paid in the last ten years amount to more than one third of today's share price. Numis can also make a verifiable claim to successfully making the step that many London brokerages fail to clutch of substantial placings achieve: the move from smallcap broker to midcap broker. This is evinced by the Numis client list, where the average market capitalisation is £692m. That statistic is crucial in understanding a broker's prospects. Large companies may be established but when they need an equity injection to respond to crisis or opportunity, we expect them to be raising significant amounts. The recent results statement from Numis shows that the company has been integral to a collection of substantial placings: Polypipe (£120m), Hyve (£126m) and ASOS (£250m). Two days following results, Numis acted for AIM star Keywords Studios on its £100m fundraise. While it does not

necessarily follow that Numis received the full commission pot for these deals, the uplift to revenues for the second half will be material. Numis has had a 'good' coronavirus. Equity markets are exceptionally strong in the face substantial net cash of negativity and it is for that reason that I am prepared to speculate the IPO market may be stronger than consensus believes. Large companies, private equity and government owners will struggle to find a market happier to put a high rating on earnings and the apparent ease at which several companies have raised funds shows that there is money out there. Numis has been increasing market share. It has an excellent opportunity to build on its longstanding success. Numis Corporation (LON:NUM) FOR proven winner strong brand

AGAINST not a bargain staff bonuses expected Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£317m 293p:296p 21.5 4.0% 165p:306.5p



The share price that denies COVID-19 Everyman Media is a 35-strong cinema chain. The share price is ignorant of COVID-19 and oblivious to the existential threat of streaming services. Everyman joined AIM in 2013. It then operated ten cinemas, all in London and the South East, apart from one site in Leeds. The Everyman experience is premium. Venues are expensively furnished with a lounge bar vibe. Food is a major differentiator, with a 'to your seat' service. There is a bar offering and the auditorium seating is a celebrated feature: plush and sofa-like, with some two seater booths. a big price This comes at a big price. An Everyman Cinema ticket typically sells at a premium of around 50% to the standard chains. To date, customers and investors have been happy to fund Everyman Media's rollout. However, some powerful forces are now lined up to threaten the Group's profitability. The first issue that Everyman Media will face after lockdown is whether its product is fit only for boomtime or remains relevant in recession. What will vex management


most however, will be the question of future coronavirus restrictions. Management took the decision to close all venues on March 17th. It is unclear when they may reopen, what restrictions will be imposed or consumers' willingness to visit. Reduced audiences could cut sales to a level that renders will studios release films Everyman's venues not worth opening. It is also unclear what features cinema will be ready to show. Big releases, such as the latest Bond, were delayed as shutdown approached. Will studios release films to theatres that are unable to provide acceptable revenues? Will there be a flood of releases, followed by a drought? Add to this the rise of internet streaming sites e.g. Netflix. Combine with improvements in home A/V and cinema looks an expensive alternative. Furthermore, there is a tussle between studios and cinemas as to how long cinemas are allowed before a film is available to stream. Currently, cinemas typically have new releases exclusively for 90 days. There is pressure to reduce this, especially as some studios have their own streaming offer. The COVID-19 outbreak led Universal Studios to release some titles immediately to streamers.

Everyman Media responded to the challenge of lockdown on April 8th, looks set to survive launching an oversubscribed placing to raise £17.5m. This added approximately 25% more shares, to give a total of 91m shares in issue. This gives Everyman sufficient funding to keep its theatres closed until December, if necessary. Everyman thus looks set to survive. The growth story however is in tatters. The Group has curtailed its rollout plans, withdrawing all non contracted spending. To the year ending January 2nd, 2020, £65m of revenues were earned, delivering a profit after tax of £1.8m. Even on a pre-IFRS 16 basis, that figure was just £3.2m. The headwinds are gale force. Is there another AIMquoted company whose prospects are so out of kilter with its share price? Everyman Media (LON:EMAN)

FOR distinct offering longstanding consumer habit

AGAINST diminished earnings visibility Panglossian valuation £116m

Market cap




P/E (forecast) Yield (forecast) 52week low:high

0 67p:232p


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